Income Tax Return (ITR) Form 3 is used by individuals or Hindu Undivided Families (HUFs) who have income from “Profits or gains of business or profession.” This form allows you to report various sources of income, including salary, capital gains, interest from banks, and income from trading in Futures and Options (F&O) or intraday trading. This detailed guide will help you file ITR 3, focusing on how to report losses from F&O and intraday trading.
Understanding Income Details
To illustrate, let’s consider an example of Mr. Arindam, a salaried employee who also engages in share market trading, including intraday and F&O transactions. His income details are as follows:
1. Other Income:
-
- Short-Term Capital Loss: Rs. 65,000
- Long-Term Capital Gain: Rs. 3,70,000
- Income from Bank Interest: Rs. 25,000
- Income from Salary: Rs. 4,80,000
2. Intraday and F&O Transactions:
-
- Detailed transaction data extracted from his demat account.
Step-by-Step Procedure to File ITR 3
1. Login to Income Tax Portal:
-
- Visit www.incometax.gov.in.
- Go to e-file > Income Tax Return > File Income Tax Return.
- Select Assessment Year (AY) 2023-24 > Online mode.
- Start New Filing > Individual > Select ITR Form > ITR3.
2. Fill in General Information and Audit Details:
-
- Complete Part A – General Information.
- For “Are you liable to maintain accounts as per section 44AA?”, click ‘Yes’ if applicable. Maintain a simple Profit & Loss (P&L) statement and Balance Sheet.
- For “Are you liable for audit under section 44AB?”, click ‘No’ if the audit is not applicable.
3. Enter F&O Business Details:
-
- Select code 13018 – other financial intermediation services in the Schedule Nature of Business.
- Enter the assessee’s name and description as “Future & Options.”
4. Prepare Computation Sheet:
-
- Calculate absolute turnover for intraday and F&O transactions by summing up all profits and losses.
Computation Sheet Example:
| Particulars | Turnover | Gross Profit/ (Loss) | Expenditure Incurred | Net Profit/ (Loss) |
| Intraday | 72,027 | 5,372 | 6,113 | (741) |
| Future | 20,918 | (7,674) | 862 | (8,536) |
| Options | 7,61,019 | (57,670) | 24,986 | (82,656) |
| Total | 7,81,937 | (65,344) | 25,848 | (91,192) |
5. Enter Details in ITR Form:
-
- Schedule PL – Part A – P&L Account:
- Enter F&O transaction details in Sl. No. 46.
- Enter intraday transaction details in Sl. 65.
- Schedule BS (Balance Sheet):
- Prepare the Capital Account and enter details under Source of Funds > Proprietor’s Fund and Application of Funds > Current Asset > Balance at Bank.
- Schedule PL – Part A – P&L Account:
6. Confirm Other Schedules:
-
- Confirm details in Schedule CYLA, BFLA, CFL, and Schedule Special Income.
- These schedules will automatically calculate the total income and set off/carry forward losses.
7. Report Other Income:
-
- Enter details of salary, capital gains, and interest income in their respective schedules.
8. Preview and Submit:
-
- Review all entered information.
- Preview the form and submit it on the portal.
Detailed Explanation of Key Steps
Login to Income Tax Portal:
First, visit the official Income Tax e-filing portal. Log in with your credentials. If you don’t have an account, you need to register first. Once logged in, follow the steps to file ITR 3.
Fill in General Information:
In this section, you need to provide your basic details like name, address, PAN, date of birth, and contact information. Also, you will answer questions related to the maintenance of accounts and audit requirements. As per Section 44AA, you need to maintain books of accounts if your turnover exceeds Rs 10 lakh in any of the three immediately preceding years. Even if your turnover is less, it’s advisable to maintain a simple account statement in case of F&O losses.
Enter F&O Business Details:
When you reach the Nature of Business section, select the appropriate code for your trading activities. Here, you will enter your name as the proprietor and describe your business activities as “Future & Options.”
Prepare Computation Sheet:
Before entering details into the ITR form, you should prepare a computation sheet. This sheet helps you calculate your total turnover and net profit or loss. For F&O and intraday transactions, calculate the absolute turnover by summing all profits and losses. This value is important for determining whether you need an audit.
Enter Details in ITR Form
Schedule PL – Part A – P&L Account:
Here, you will enter the details of your F&O and intraday transactions. For F&O transactions, use Sl. No. 46, and for intraday transactions, use Sl. 65. Ensure you enter the correct amounts for turnover, gross profit/loss, and expenditures incurred.
Schedule BS (Balance Sheet):
In this section, you need to prepare your capital account. Enter details under Source of Funds > Proprietor’s Fund and Application of Funds > Current Asset > Balance at Bank. Also, account for your profit and loss accumulation balance.
Confirm Other Schedules:
After entering your main income and business details, you need to confirm the information in Schedule CYLA (Current Year Loss Adjustment), BFLA (Brought Forward Loss Adjustment), CFL (Carry Forward Losses), and Schedule Special Income. These schedules will automatically calculate your total income and set off/carry forward losses based on the details you have entered.
Report Other Income:
In the respective schedules, enter details of your other income sources, such as salary, capital gains, and interest income. This ensures that all your income sources are reported accurately.
Preview and Submit:
Finally, review all the information you have entered to ensure its accuracy. Preview your filled form to make sure everything is correct. Once satisfied, submit the form on the portal.
Points to Remember
Current Year Loss Adjustment
Losses from F&O trading can be set off against capital gains, interest income, and other sources of income except salary. For example, if your current year’s F&O loss is Rs. 91,192, it can be set off against other income sources like capital gains and interest income.
Speculative Losses
Losses from intraday transactions are termed speculative losses. These losses can be carried forward for up to four consecutive financial years. They can only be set off against speculative business income earned during that period. For instance, if your intraday loss is Rs. 741, this loss can be carried forward and set off against speculative income in the next four years.
Current Year Loss Adjustment Example
| Head / Source of Income | Income of the Current Year | Business Loss Set Off | Remaining Income After Set Off |
| Salaries | 4,27,500 | 0 | 4,27,500 |
| Income from Interest | 25,000 | 0 | 25,000 |
| LTCG | 3,05,000 | 66,192 | 2,38,808 |
| Total | 7,57,500 | 66,192 | 6,66,308 |
Accrual/Receipt of Capital Gain
It is important to report taxable capital gains in Schedule Capital Gain for advance tax calculation. For example, if your taxable capital gain is Rs. 2,38,808, this should be reported in the respective quarter to ensure accurate advance tax calculation and to avoid any penalties.
Carrying Forward Intraday Losses
Intraday losses will be reflected in Schedule CFL (Carry Forward Losses). This means, for instance, if your intraday loss is Rs. 741, it will be carried forward and can be set off against speculative income in the future years.
1. Maintain Records:
-
- Keep detailed records of all your transactions, including buy/sell dates, prices, and volumes. This will help in accurate calculation and reporting.
2. Use Software Tools:
-
- Consider using accounting software or tools to track your trading activities. This can simplify the process of preparing your computation sheet and balance sheet.
3. Seek Professional Help:
-
- If you find the process complex, don’t hesitate to consult a tax professional. They can provide guidance and ensure compliance with all tax regulations.
Conclusion
Filing ITR 3 for reporting F&O losses may seem daunting, but following these step-by-step guidelines can make the process more manageable. Always ensure accurate transaction details and maintain necessary records to comply with audit requirements if applicable.
*****
The author is an Income tax, accounting and GST Practitioner and can be contacted at 9024915488.
Author Bio
Hi sir, I have a loss from FnO. can you please guide me in filing my ITR